In the early European session on Thursday, USD/CAD has softened to approximately 1.3600. Oil prices increase due to the closure of the Strait of Hormuz, providing support for the commodity-linked Loonie. Market participants are closely monitoring the upcoming release of the US PCE inflation data for January, scheduled for Friday. The USD/CAD pair is currently positioned in negative territory, hovering around 1.3600 during the early hours of trading in Europe on Thursday. An increase in crude oil prices offers a degree of support to the commodity-linked Canadian Dollar. The Initial Jobless Claims report for the US will be published later on Thursday.
The oil market is experiencing significant fluctuations following Iran’s statement that the world should prepare for crude prices reaching $200 a barrel. This comes in the wake of military actions against merchant ships on Wednesday, leading to a sharp decline in vessel traffic through the Strait of Hormuz. Bahrain reported early Thursday that Iran has aimed at fuel tanks at one of its facilities. Meanwhile, a senior Iraqi port official indicated that two foreign tankers were struck in its waters, resulting in fires and oil leaks. “We should expect ongoing volatility in energy prices,” stated Rodrigo Catril. “The extended absence of a pathway will perpetuate the pressure on prices.”
Ongoing geopolitical risks may elevate crude oil prices and support the commodity-linked Canadian dollar. It is important to recognize that Canada stands as a significant player in the oil export market, and elevated crude oil prices typically exert a favorable influence on the CAD. Market participants will pay careful attention to the upcoming US Personal Consumption Expenditures Price Index report for January, set to be released on Friday.
The headline PCE is anticipated to increase by 2.9% year-over-year in January, whereas core PCE is forecasted to grow by 3.1% in the same timeframe. If the reports indicate stronger-than-anticipated results, this may bolster the Greenback relative to the CAD in the short term. Current market expectations indicate a nearly 99.5% likelihood that the Federal Reserve will maintain interest rates at their current levels during the March policy meeting, as per the CME FedWatch tool.